Hardnosed political analysis and its implications for development and business opportunities in Africa

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Africa trends – May 2016, the modern 3 “Cs” kicking in?

So what are the prospects for Sub-Saharan Africa four months into the year?

Overall, the mixed trends outlined in my December outlook still hold and in many ways they have further deepened. The underlying demographic trends and gradual professionalisation and innovation is still an important course for long-term optimism.

Yet, the latest growth forecast is down to just over 3%, or more worryingly near 0% growth per capita. This should clearly worry politicians, business people and development partners.

In the short run, I see three courses of concern:

1) China. The slowdown is clear and only beginning. The impact on Africa is significant, both in terms of price of extractives and in terms of investment. A number of countries with “look East” strategies suffer from this.

2) Corruption and loss of reform momentum. It is now very clear that a number of countries (and development agencies) got over-optimistic about growth prospects. The fact that growth was generated by favourable extractive prices, Chinese investments and cheap credit with no change in productivity and no drive to improve public sector management, the business environment and other key reform areas. On the contrary, corruption and populist politics deepened. This has left a number of countries with severe budget deficits and increasing debt.

3) Critical and concerned electorates and middle class. Closely linked to the China (external) and corruption (internal) point above. People are increasingly angry. The disconnect and gap between “old-school” leaders and politics on the one hand and a gradually better educated and better informed and demanding electorates on the other is increasing. While I see no immediate major political crises on the horizon, low growth, poor services and job loses could easily cause problems in places like Ghana, Zambia, South Africa and beyond – most likely triggered by a corruption case with a particular public appeal.

In the long run, this could be seen as a normal development path, where the type of tension described above is necessary to improve the quality of leadership and public sector management which in turn will enable future growth. The initial signs are that leaders will look inward, become populist and pursue regressive rule-and-divide (using religion, ethnicity etc) rather than positive and progressive policies. Recent Mo Ibrahim scores across Africa confirms this. Some countries will eventually get it right, but the risk is that a low-growth/development path will prevail for much longer than necessary.

So what does this mean for businesses, security and development?

First, accept the easy times are over. Africa is still full of opportunities. But one needs to be realistic about the time frames and scale. Presence and demonstrating that one understands the context is crucial.

Second, get the facts right. The size of the market is still growing. But the lower middle classes are squeezed and possibly getting smaller in a number of countries. Fiscal deficits, debt levels and low growth will impact. At business level, get contracts right and expect less robust regulatory systems.

Lastly, most importantly as always, understand the politics and above all the drivers. In some respects, Africa has seen massive social change during the recent 20 years. But some of these changes are reversible. Technology, urbanisation and demographics will be positive drivers opposing old school elite politics facing increasing crisis. How this plays out will vary from country to country, but expect more frequent incidences of protests and civil unrest and beware of increasing use of negative politics – xenophobia, use of gangsters to protect business interests and increased crime in general. This should not scare anybody from working or investing in Africa, but rather just emphasise the need for good advice and partners.